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January 29, 2014

NFC or AFC: Can the Super Bowl Predict the Stock Market?

‘It works more often than it doesn’t,’ says Robert H. Stovall; other market experts (including his son) are skeptical

There’s always much to debate when it comes to statistics and correlation. Take the issue of whether an American Football Conference victory in the Super Bowl is a real indicator of where the stock markets are going — or not.

Rather than argue over numbers and analysis, why not just sit back and enjoy the game — as well as the theory? That’s the approach taken by Robert H. Stovall Sr., who keeps track of the Super Bowl and its relationship to the markets and is considered a market guru for many in the business.

“About 30 years ago, I noticed a column in the newspaper saying that the Super Bowl predicted the direction of the market,” said Stovall in an interview with ThinkAdvisor. “If a team had its roots in the old American Football League or an expansion team won, the indexes would tend to decline, and if the team had its roots in the old National Football League and won, it was the opposite. I thought this was interesting.”

(In 1970, several NFL and 10 AFL teams merged to form the AFC, while the remaining 13 NFL teams formed the National Football Conference.)

This Sunday’s game, of course, pits the Seattle Seahawks — originally part of the NFC — against the Denver Broncos, first part of the AFL. Both teams have since switched affiliations. (The Seattle Seahawks played their first season in 1976 in the NFC but switched to the AFC the following year, then returned to the NFC in 2002, making them the only team to have switched conferences twice in the post-merger era.)

But the “rules” governing the Super Bowl predictor are clear. If the team that was first in the AFL — in this case, the Broncos — wins, markets are poised for bearish movement. If a team from the old NFL (or, in this case, NFC) is the victor, expect a bullish run.

“First, I thought both teams were originally AFL, but then I checked. Seattle came into the league as an NFC team, so we stick to the old rule,” said Stovall, now in his 80s but still working in Sarasota, Fla., as a managing director and market strategist for Wood Asset Management.

From the late 1970s through 2013, he says, the predictor has been right 81% of the time: “It works more often than it doesn’t.”

Old Rules, New Market

As for this year, some market experts are a bit sanguine on both where equities are going and how the predictor will fare.

The S&P 500 was trading down about 4% for the year on Friday. It started the year at 1,848.

“I believe the Super Bowl theory has high correlation and no causation,” Sam Stovall, Robert’s son and the chief equities strategist at S&P Capital IQ in New York, said in an interview. “I work on the January barometer, the theory that as January goes, so does the year. And in 2014 … we don’t have a good sign for the rest of the year.”

While the S&P, on average, has been up 7.3% per year since 1945, it has seen gains of just 0.1% in years when it’s gone down in January.

“My feeling is one of pessimism,” the younger Stovall explained, “though we are targeting 1,940 as the S&P’s ending level for 2014, which would be a 5% full-year gain.”

Forget battles on the football field. It’s the midterm elections that could cause investor concern. “People do not like this uncertainty,” he noted.

The Super Bowl predictor, the S&P Capital IQ analyst adds, is an interesting correlation. “But there’s nothing that an AFC team would do to cause the market to do up or down,” he said. “I lean for the Broncos, because Peyton Manning appears to be a quality guy; other than that, I’m just rooting for good game.”

Raw Randomness

Jeff Saut, chief investment strategist at Raymond James (RJF), points out that the New York Giants — an old-NFL team — won the Super Bowl in 2008, the year the market fell 38%. “I put zero stock in the Super Bowl indicator,” he said in an interview.

He follows the January indicator, but is more keen on watching the December low. For the Dow in 2013, that was 15,739.43.

“We do not want to get under that in the first three months of 2014,” Saut said. “I’ve been telling people since mid-December … that the market’s gone way up and would be vulnerable through late January and early February. We’re on track for a 5%-7% or 10-15% correction.”

On the upside, he says, this is a good time to look at portfolio holdings that have underperformered since June 2012. “You can sell them and raise cash,” Saut said.

Regardless of the naysayers, the senior Stovall says he enjoys tracking statistics like the Super Bowl indicator. He’s also known for his work on the General Motors indicator, which he made popular before the Super Bowl indicator.

Of course, he had to back off from that approach when GM went into backruptcy. “But now, it’s doing well, though I’m not writing about it,” he said.

As for Sunday’s matchup, “All we can do is watch and see. I’ll probably talk about [the Super Bowl indicator] during the game,” he said, “when we’ll all be snacking and amusing ourselves along with the way.”